Re Buildark Constructions Pty Ltd (in liq)
[2022] VSC 653
•28 October 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2021 01218
IN THE MATTER of BUILDARK CONSTRUCTIONS PTY LTD (IN LIQUIDATION)
(ACN 166 977 902)
BETWEEN:
| SUMMER BREEZE PTY LTD (ACN 165 267 541) | Plaintiff |
| v | |
| RICHARD TRYGVE ROHRT in his capacity as liquidator of BUILDARK CONSTRUCTIONS PTY LTD (IN LIQUIDATION) (ACN 166 977 902) | First Defendant |
| BUILDARK CONSTRUCTIONS PTY LTD (IN LIQUIDATION) (ACN 166 977 902) | Second Defendant |
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JUDGE: | Gardiner AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 28 October 2022 |
CASE MAY BE CITED AS: | Re Buildark Constructions Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 653 |
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CORPORATIONS — Winding up in insolvency – Creditor submits proof of debt – No funds available for distribution for creditors – Liquidator declines to adjudicate on creditor’s proof of debt by reason of lack of funds – Creditor applies to the Court under reg 5.6.53(2) of the Corporations Regulations 2001 (Cth) for a decision in respect of its proof of debt – Starmaker (No 51)Pty Ltdv Mawson KLM Holdings Pty Ltd (2005) 193 FLR 339; Simto Ltd v Court as liq of Carob Industries Pty Ltd (in liq) (1977) 138 FLR 232 discussed – Winding up preceded by period in which company was subject to deed of company arrangement – On occasion that winding up order made, deed of company arrangement terminated and plaintiff awarded costs of application – Order for costs post-dated the relevant date fixed by ss 9, 513A and 513C of the CorporationsAct 2001 (Cth) (‘the Act’) – Whether claim for costs was provable in the winding up – Discussion of the operation of ss 553(1) and 553(1A)(a) of the Act – Foots v Southern Cross Mine Management Ltd (2007) 234 CLR 52 discussed – Claims of plaintiff including claim for legal costs admitted to proof in the winding up.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Evans KC | Rockman & Rockman |
| For the Defendants | Mills Oakley |
TABLE OF CONTENTS
Summer Breeze’s application...................................................................................................... 3
Legal principles to be applied..................................................................................................... 3
Summer Breeze’s evidence.......................................................................................................... 9
Claim in respect of building contract to complete 576 Esplanade, Mornington – $1,788,651.83.............................................................................................................................................. 12
Variations to Tempo contract in relation to defects – $19,044.97......................................... 13
Variation to Tempo contract in relation to defects – $5,648.22............................................. 14
Liquidated damages pursuant to the Buildark contract up to 24 September 2018 – $323,500 14
Interest and fees paid to National Australia Bank in relation to facilities – $249,256.86.. 15
Interest and fees paid to National Australia Bank in relation to facilities from 1 November 2018 until 14 January 2019 – $165,505.65................................................................................. 15
Insurance premium for the Mornington construction site – $40,403.................................. 16
Cost of expert defects report from Curie Constructions – $74,800...................................... 16
Quantity surveyor assessments – $22,949.63.......................................................................... 17
Finnis architectural work to complete project – $15,095.34.................................................. 17
Legal fees arising from breach by Buildark of the Buildark contract.................................. 17
Survey work by Farren Group – $1,650................................................................................... 18
BCE Design Pty Ltd, engineering inspection – $2,640........................................................... 19
Olsson Fire & Risk Consulting Engineers – $3,080................................................................ 19
Costs pursuant to orders of Riordan J made 1 April 2020 – $174,621.36............................ 19
HIS HONOUR:
On 5 October 2018, Mr Richard Rohrt was appointed administrator of the second defendant, Buildark Constructions Pty Ltd (In Liquidation) (‘Buildark’), pursuant to s 436A of the Corporations Act 2001 (Cth) (‘the Act’).
At the second meeting of Buildark’s creditors on 21 December 2018, the creditors resolved that Buildark execute a deed of company arrangement (‘DOCA’). On 14 January 2019, the DOCA was executed and Mr Rohrt was appointed deed administrator.
In proceeding number S ECI 2019 00453, an application was made by the plaintiff in this proceeding, Summer Breeze Pty Ltd (‘Summer Breeze’), to set aside the DOCA.
On 3 April 2020, Riordan J made orders by consent terminating the DOCA and ordered that Buildark be wound up in insolvency. Mr Rohrt was appointed liquidator in the winding up.
On 8 April 2020, Mr Rohrt circularised the creditors advising them of the termination of the DOCA and his appointment as liquidator. Mr Rohrt advised the creditors that the deed contribution received from the director of the company under the terms of the DOCA had been applied in payment of Mr Rohrt’s remuneration to the limit approved by the creditors and the legal costs and expenses associated with his involvement in the proceeding to set the DOCA aside. Mr Rohrt advised that the deed fund had thereby been completely exhausted, that there would be no dividend to the creditors of Buildark from the deed fund, and that any return to creditors would only occur if recoveries became available to him as liquidator. The creditors were invited to provide Mr Rohrt’s office with a proof of debt. A Form 535 Formal Proof of Debt or Claim (General Form) was appended to Mr Rohrt’s circular letter.
On 2 July 2020, Mr Rohrt sent a statutory report to creditors pursuant to r 70‑40 of the Insolvency Practice Rules (Corporations) 2016, informing creditors of, among other things, an estimate of the assets and liabilities of Buildark, the progress of the liquidation, and the likelihood of a dividend being paid in the liquidation. The report summarised Buildark’s assets and liabilities based on the report as to affairs compiled by the director together with Mr Rohrt’s investigations. The summary indicated that the estimated realisable value of Buildark’s assets consisted of cash at bank of $71. The company’s liabilities were estimated to be $4,094,968. Later in the report, Mr Rohrt stated that it was unlikely there would be sufficient assets realised in the liquidation to enable a distribution to be paid to any class of creditors and that creditors would be notified if the situation changed in that regard.
On 7 September 2020, Mr Rohrt’s office received an updated proof of debt and particulars of debt from the solicitor for Summer Breeze, Mr Rockman. The updated proof claims the sum of $2,922,807.36, comprising of 17 separate claims. Mr Rohrt formed the opinion that the claims involved a degree of legal complexity that would require legal advice if they were to be adjudicated upon.
On 27 October 2020, Mr Rohrt’s office wrote to Mr Rockman confirming the observation in the statutory report to creditors of 2 July 2020 that there were unlikely to be sufficient assets realised in the liquidation to enable a distribution to be paid to any class of creditors and that the position in that regard had not changed. The receipt of what was described as the formal proof of debt from Summer Breeze was acknowledged. It was indicated that to avoid further costs in the liquidation being incurred unnecessarily, the proof would not be adjudicated upon, but reiterated that if funds became available to enable a dividend distribution, Mr Rockman’s client would be notified.
In an affidavit sworn 24 June 2021, Mr Rohrt sets out the factual background to the Buildark liquidation, together with his office’s communications with representatives of Summer Breeze. He confirms that the position as to the availability of funds had not changed. Mr Rohrt stated that he was not aware of the reasons why Summer Breeze sought to have its proof of debt adjudicated upon given there are no funds to pay any dividend.
Mr Rohrt states that he is without funds to appear in this proceeding and has no objection to the substantive relief sought by Summer Breeze in the amended originating process. He does not intend to be heard on that relief other than on the question of costs if a costs order is sought against him personally or Buildark.
Summer Breeze’s application
On 21 April 2021, Summer Breeze made application by originating process seeking relief under reg 5.6.53(2) of the Corporations Regulations 2001 (Cth) (‘Corporations Regulations’).[1] It sought the following relief:
An order deciding whether or not the plaintiff’s proof of debt in respect of the liquidation of the second defendant, a copy of which is at ‘RR14’ to the exhibit to the affidavit of Raymond Rockman made on 11 May 2021 and filed in this proceeding should be admitted.
[1]On 14 May 2021, Summer Breeze filed an amended originating process, but only to correct typographical errors.
Legal principles to be applied
A predominant purpose of winding up is to enable the proper distribution of the company’s assets amongst its creditors. That involves ascertaining the liabilities of the company to give effect to such distribution. This requires identification of the identity and entitlement amount of the creditors who are eligible to be involved in that distribution by the process of proving debts.
The provisions in respect of a creditor’s claims are dealt with in ss 553–554J of the Act. These provisions mirror corresponding sections in the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’) and certain bankruptcy provisions continue to apply.
In this regard, s 553E of the Act provides that, subject to the provisions contained in the Act, the same rules that apply in bankruptcy (except for those covered by ss 82–94 and 96 of the Bankruptcy Act) are to apply in company windings up. The scenario in bankruptcy law is to be contrasted with corporations law in that if claims are not provable debts in a person’s bankruptcy, the consequence is that the bankrupt may remain personally liable for them. Because a company ceases to exist at the finalisation of a winding up, the Act provides far fewer categories of claim that are not provable. By way of example, unlike in bankruptcy, claims of unliquidated damages in tort are provable in a company liquidation.[2]
[2]See Michael Murray and Jason Harris, Keay’s Insolvency: Personal and Corporate Law and Practice (Thomson Reuters, 10th ed, 2018) [15.245] (‘Keay’s’), citing Re One Tel Ltd; Walker and Sherman [2002] 43 ACSR 305.
Sections 553(1) and 553(1A)(a) of the Act provide what debts are provable in the winding up of a company:
(1)Subject to this Division and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.
(1A)Even though the circumstances giving rise to a debt payable by the company, or a claim against the company, occur on or after the relevant date, the debt or claim is admissible to proof against the company in the winding up if:
(a)both of the following are satisfied:
(i)the circumstances occur at a time when the company is under a deed of company arrangement;
(ii)the company is under the deed immediately before the resolution or court order that the company be wound up;
In the winding up of Buildark, the ‘relevant date’ for the purpose of s 553 is the date that it went into administration, 5 October 2018.[3]
[3]See Corporations Act 2001 (Cth) ss 9, 513A(d), 513C(d) (‘Corporations Act’).
Section 553(1) is intended to define provable claims very widely and was incorporated into corporations legislation in its present form following recommendations made in the Harmer Report.[4] In Sons of Gwalia Ltd v Margaretic,[5] Hayne J observed:
The Harmer Report identified a basic aim of insolvency laws as being ‘to deal comprehensively with all of the debts and liabilities of the insolvent’ and said that, ‘[i]n the case of a company, the aim is to deal with all the claims against a company so that its affairs can be fully wound up or so that it can resume trading’ [emphasis added]. The Harmer Report concluded that ‘[t]he categories of claims which are admissible should be as wide as possible so that the financial affairs of the insolvent are dealt with comprehensively’. Otherwise, as the Harmer Report pointed out, ‘if the creditors are unable to make their claims in the insolvency, they are unable to recover at all (unless they have a basis for action against either directors of the company or a guarantor of the company’s debts or unless the winding up is stayed)’.[6]
[4]See Farid Assaf, Assaf’s Winding Up in Insolvency (LexisNexis, 3rd ed, 2021) (‘Assaf’) [1.24], citing Sons of Gwalia Ltd v Margaretic (2007) 60 ACSR 292 (‘Sons of Gwalia’).
[5]Sons of Gwalia (n 4).
[6]Ibid 337 (citations omitted).
Assaf observes:
A creditor has a ‘claim’ for the purposes of the Division if they have a basis, founded on an existing legal right, for asserting a right to participate in the division of the assets of the company. The purpose of s 553 of the Corporations Act in that regard is that all the legal obligations to which a company is subject should be ascertained, and each of them valued as at a common date, so that those obligations can be taken into account in a winding up or other administration that is underway.[7]
[7]Assaf (n 4) [1.25].
In order to be provable, debts need not be presently due and payable. As has been mentioned, claims of unliquidated damages in tort are provable debts. If debts are ‘future debts’ within s 553 of the Act, in the sense that they are not payable at the relevant date, they are still provable subject to a statutory discount for accelerated ‘payment’ under s 554B of the Act.[8]
[8]See Keay’s (n 2) [15.255].
Section 553(1A)(a) of the Act is of significance in this application and I shall return to a consideration of its operation in the current context later in these reasons.
Part 5.6 of the Corporations Regulations contain provisions in respect of, among other things, submission of proofs of debt by creditors. Relevantly, in the present context, reg 5.6.50 provides:
Contents of formal proof of debt or claim
(1) A formal proof of debt or claim must:
(a) contain detailed particulars of the debt or claim sought to be proved; and
(b) in the case of a debt, include a statement of account; and
(c) specify the vouchers (if any) by which the statement can be substantiated.
(2) The liquidator may at any time call for the production of the vouchers mentioned in subregulation (1)
Regulation 5.6.53(2) provides:
(1) A liquidator must, within:
(a)28 days after receiving a request in writing from a creditor to do so; or
(b)if ASIC allows—any further period;
in writing:
(c) admit all or part of the formal proof of debt or claim submitted by the creditor; or
(d) reject all or part of the formal proof of debt or claim; or
(e) require further evidence in support of it.
(2) If the liquidator does not deal with a request under subregulation (1) in accordance with that subregulation, the creditor who submitted the proof may apply to the Court for a decision in respect of it.
(3) If the liquidator gives notice in writing to a creditor that further evidence is required in support of the formal proof of debt or claim submitted by the creditor under subregulation (1), the period mentioned in that subregulation is taken not to have begun to run until the day on which the liquidator receives a sufficient written answer to his or her notice.
Regulation 5.6.53 has been the subject of limited judicial consideration. Its operation was discussed by Layton J in Starmaker (No 51) Pty Ltd v Mawson KLM Holdings Pty Ltd (‘Starmaker’),[9] which in turn considered a decision of Master Bredmeyer in Simto Ltd v Court as liq of Carob Industries Pty Ltd (in liq).[10]In Starmaker, Layton J stated:
[9](2005) 54 ACSR 453.
[10](1997) 138 FLR 232.
Counsel for Starmaker relied on a case of Simto Ltd v Court as liq of Carob Industries Pty Ltd (in liq). Simto considered whether the liquidator’s duty pursuant to reg 5.6.53 of the Corporations Regulations are mandatory and further whether the exercise of the duty was dependent upon the liquidator having called for a formal proof of debt. In the course of deciding that it was not necessary for the application of the regulation for the liquidator to have called for a formal proof of debt under reg 5.6.48, observations were made by Master Bredmeyer as to the effect of the two subregulations, (regs 5.6.53(1) and 5.6.53(2)) the subject of consideration here.
In finding that a liquidator is required to deal with a proof of debt notwithstanding that there was no formal offer that proofs of debt be proffered, Master Bredmeyer aptly summarised the interpretation of reg 5.6.53(1) and (2) as follows:
... whether in response to the liquidator calling for formal proof of claims or not — the liquidator is required by that subregulation [(1)] to deal with the claim in the manner prescribed ... The plain meaning of the word ‘must’ is mandatory and I am not persuaded that the somewhat odd provision of subregulation (2), immediately following (1), alters that view. I say (2) is odd because it contemplates that a liquidator will not do what subregulation (1) says he must do. The interpretation which I favour is I think consistent with the general duties of a liquidator ... The liquidator being in a fiduciary relationship [and] ... When determining the debts of the company, the liquidator acts not for the company but in a quasi-judicial position for the purpose of all the creditors generally as claimants on a fund being administered by the court.
In Simto, the master was persuaded by arguments of the plaintiff that subreg (2) is a concession to human frailty on the basis that:
human nature being what it is, there may be a liquidator who neglects or fails to carry out that duty and subregulation (2) gives the creditor an opportunity to side-step that inaction and apply to the court and get a decision on his claim from the court.[11]
[11][33]–[35] (citations omitted).
At paragraph 40, Layton J observed:
The court has by reg 5.6.53(2), jurisdiction on appeal to make a ‘decision’. If no decision has been made by the liquidator on the proof of debt, then this court is empowered to make a decision in lieu of the liquidator.[12]
[12]Ibid [40].
The form of reg 5.6.53 considered by Layton J in Starmaker is identical to the current form of the regulation. The Form 535 appended to the circular to creditors of 8 April 2020 by Mr Rohrt was, as has been remarked, headed ‘Formal Proof Debt or Claim’ with the form being partially completed by Mr Rohrt’s office with the insertion of the name of Buildark in full with its ACN. The circular letter itself does not refer to a ‘formal’ proof of debt but rather a proof of debt, but on an application of the reasoning of Layton J extracted above, this would seem to be of no significance.[13] That is to say, the liquidator’s obligation is to deal with a proof, whether or not there was, in Layton J’s words, ‘a formal offer that proofs of debt be proffered’.
[13]Ibid [34].
In its submissions, Summer Breeze made reference to McPherson’s Law of Company Liquidation,[14] where reference was made to the obligations of a liquidator in assessing whether to admit a proof of debt in a liquidation, as being as follows:
Generally speaking, ‘all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company’, and must be paid pro rata in accordance with the scheme of the Act (s 553(1), s 555ff). The liquidator’s first task is to ascertain the extent of the liabilities and the identity of the respective creditors. This may be accomplished partly by examining the books of the company and the statement of affairs submitted by directors (see [8.1850]ff); but the liquidator is also required to invite claims by advertisement and, if necessary, by personal communication with creditors who have failed to prove their debts. To sum up, Lord Denning in Austin Securities Ltd v Northgate & English Stores Ltd [1969] 1 WLR 529 said:
It is the duty of a liquidator to inquire into all claims, to see whether they are well founded or not, to pay the good claims, to reject the bad, to settle the doubtful, or, if need be, to contest them. It is only in this way that a liquidator can fulfil his duty … of seeing that the property of the company is applied in satisfaction of its liabilities pari passu.
The liquidator is under a duty to ensure that no claims are admitted to proof in the winding up or paid unless the company’s liability in respect thereof is clearly established to her or his satisfaction. ‘In adjudicating on a proof of debt, a liquidator acts in a quasi-judicial capacity, according to standards no less than a court or judge, and must act impartially, when seeking to discover who are the company’s creditors’.
[14]Thomson Reuters, McPherson’s Law of Company Liquidation [8.2160] (citations omitted).
The High Court, in Tanning Research Laboratories Inc v O’Brien,[15] which involved an appeal from a rejection of a proof of debt, Brennan and Dawson JJ stated:
In determining whether to admit or reject a proof of debt, a liquidator has been said to act in a quasi‑judicial capacity according to standards no less than the standards of a court or judge. This description of a liquidator’s function reflects his duty to distribute the assets in his hands or under his control among the persons truly entitled. That duty was stated by Viscount Simonds in Government of India v Taylor:
‘I conceive that it is the duty of the liquidator to discharge out of the assets in his hands those claims which are legally enforceable, and to hand over any surplus to the contributories. I find no words which vest in him a discretion to meet claims which are not legally enforceable. It will be remembered that, so far as is relevant for this purpose, the law is the same whether the winding up is voluntary or by the court, whether the company is solvent or insolvent, and that an additional purpose of a winding up is to secure that creditors who have enforceable claims shall be treated equally, subject only to the priorities for which the statute provides’.
The principles which determine enforceability of the liability to which a proof of debt relates are, in the main, the same as the principles which would be applied in an action brought directly against the company to enforce that liability.[16]
[15](1990) 169 CLR 332.
[16]Ibid 338–9.
I regard the role of the Court in considering an application under reg 5.6.53 as being akin to considering an appeal against a rejection or admission of a proof of debt in a winding up which, although referred to as an appeal, are heard by the Court de novo.[17] As such, I must be satisfied that Summer Breeze’s claims are ‘well founded’, ‘clearly established to [my] satisfaction’ and ‘legally enforceable’. In that exercise, unlike an opposed appeal against the rejection of a proof of debt under s 90-15 of the Insolvency Practice Schedule (Corporations), here, I do not have the assistance of a contradictor as Mr Rohrt is without resources to fund legal representation. I perform my task of deciding whether the claims should be admitted to proof by assessing whether the evidence filed by Summer Breeze establishes an enforceable liability in accordance with the provisions of the Act and the Corporations Regulations to which reference has been made.
[17]Ibid, citing Westpac Banking Corporation v Totterdell (1997) 25 ACSR 769.
As has been mentioned, Mr Rohrt does not oppose the relief which Summer Breeze seeks, save as to the question of costs.
Summer Breeze’s evidence
Summer Breeze has filed a number of affidavits in the proceeding, but the substance of its application is evidenced in the affidavits of Mr Rockman sworn 11 May 2021 and of Justin Wilson, a director of Summer Breeze, sworn 2 September 2021.
In his affidavit, Mr Rockman describes the background to the matter. His evidence is substantially in accord with Mr Rohrt’s affidavit. The ASIC extract in relation to Buildark establishes that Buildark was incorporated in 2013, that Mr Rohrt was appointed its administrator on 5 October 2018, that on 3 April 2020 Buildark went into liquidation, and that Mr Rohrt was appointed as liquidator in the winding up.
Mr Rockman confirms the matters that have been mentioned above in respect of the application by Summer Breeze culminating in Buildark being wound up in insolvency and Buildark being ordered to pay Summer Breeze’s costs of the proceeding.
Mr Rockman also confirms that on 7 December 2020, he provided Summer Breeze’s formal proof of debt to Mr Lim, an assistant manager at Mr Rohrt’s accounting firm, Hamilton Murphy.
Mr Rockman exhibits a bill in taxable form in respect of the costs ordered to be paid by Buildark by Riordan J’s order of 3 April 2020.
Mr Rockman states that on 20 October 2020, he sent an email to Mr Lim in respect of Summer Breeze’s proof of debt and inquired whether Mr Rohrt had accepted the claims made in it.
On 10 November 2020, Mr Rockman wrote to Mr Lim stating that Summer Breeze required an adjudication on its proof of debt. He attached a Notice to Liquidator pursuant to reg 5.6.53 of the Corporations Regulations requesting that Mr Rohrt deal with Summer Breeze’s proof of debt within 28 days of that notice.
Mr Rockman states that he has not received any notification from Mr Rohrt that he has dealt with his request to deal with Summer Breeze’s formal proof of debt. He requests that the Court decide whether or not Summer Breeze’s proof of debt should be admitted to proof and to what extent.
The proof of debt, which forms part of the exhibit to Mr Rockman’s affidavit, appends a schedule headed ‘Particulars of Debt’, which states as follows:
Aside from the final item in respect of the bill of costs, the schedule notes that copies of the documentation in support had previously been provided to Mr Rohrt in respect of the other items. The bill of costs described in the final item is exhibited to Mr Rockman’s affidavit. It is a 70‑page document and that document was provided to Mr Rohrt on 24 August 2020.
The director of Buildark, Justin Wilson, swore an affidavit on 2 September 2021. Mr Wilson exhibits a bundle of the supporting documents to his affidavit which Summer Breeze relies upon in this application. I shall deal in turn with each category of debt making up the schedule to the proof of debt lodged by Summer Breeze.
Claim in respect of building contract to complete 576 Esplanade, Mornington – $1,788,651.83
Mr Wilson states that this claim is in respect of the amount required to complete the works at 786[18] The Esplanade, Mornington, which Buildark failed to perform, in breach of its contract with Summer Breeze. The contract between Buildark and Summer Breeze is dated 21 July 2016 and is titled ‘Amended from AS214‑992 General Conditions of Contract – Incorporating Major Domestic Building Work Under the Domestic Building Contracts Act 1995 (Vic)’ (‘the Buildark contract’). As may be expected, it is a lengthy and elaborate document.
[18]The amended proof of debt describes the address as 576 Esplanade, Mornington.
The contract sum for the performance of the works under the Buildark contract was $11,450,000 plus GST. Mr Wilson deposes that Summer Breeze paid Buildark all but $458,299.31 plus GST of the contract sum before Buildark ceased work at the Mornington site. Because the figure of $458,299.31 was not consistent with the amount stated in the proof of debt ($436,000), I sought clarification as to the correct position through my Associate. Mr Rockman responded that the figure of $458,299.31 is incorrect and that the correct figure is the figure mentioned in the proof of debt, $436,000. The works were not completed by Buildark to the paid value under the Buildark contract (excluding the $436,000) and a substantial proportion of the $436,000 sum was ultimately applied to remedy defective works performed by Buildark, which it was obliged to remedy under the Buildark contract.
Summer Breeze contracted with another builder, Tempo Development Group Pty Ltd (‘Tempo’), to finish the works at a contract price of $2,224,651, including GST (‘the Tempo contract’). This contract is also exhibited in the bundle to Mr Wilson’s affidavit. Mr Wilson deposes that all monies payable under the Tempo contract were paid to Tempo by Summer Breeze and claims that Summer Breeze has suffered a loss of $1,788,651.83. This amount is derived by finding the difference between the Tempo contract price ($2,224,651) and the amount Summer Breeze would have paid Buildark under the Buildark contract ($436,000) as part of the contract sum for the performance of works by Buildark had Buildark completed the relevant contracted works.
By reason of Buildark’s failure to perform its contractual obligations under the Buildark contract, Summer Breeze has had to pay an additional $1,788,651.83 to complete and remedy the defective works, which it would otherwise not have to do had Buildark held up its end of the bargain. Therefore, the claim of $1,788,651.83 is one for breach of contract for damages in a monetary sum. I consider that it is a provable debt under s 553 of the Act, being a claim ‘sounding only in damages … the circumstances giving rise to which occurred before the relevant date’. I accept Summer Breeze’s evidence and submission that the claim for $1,788,651 is provable in the winding up of Buildark. I will make an order admitting this claim to proof.
Variations to Tempo contract in relation to defects – $19,044.97
Mr Wilson exhibits Tempo’s invoice of 6 December 2018 which details variations to the works required to be carried out under the Tempo contract and provides a breakup as to their cost and claims an amount of $19,044.97. The variations the subject of this claim were said by Mr Wilson to be required to address defects in the works performed by Buildark under its contract with Summer Breeze, which only became apparent after the Tempo contract was signed. This is comprised of several variations, described as 1.1, 1.3, 1.4 and 1.5, totalling $9,997.47 and what is described as ‘PS sum 1.2’ for $9,047.50. This claim is, on the face of it, in the nature of a claim sounding in damages for breach of contract, which arises by reason of the need to rectify defects in the works performed by Buildark, ‘the circumstances giving rise to which occurred before the relevant date’.[19] Mr Wilson says that Tempo has been paid for these works. I accept Summer Breeze’s claim for this item as being provable in the winding up of Buildark.
[19]Exhibit ‘JW’ to the affidavit of Justin Wilson sworn 2 September 2021, p 143.
Variation to Tempo contract in relation to defects – $5,648.22
This claim is in respect to further variations to the Tempo contract. Like the claim in paragraph 43, the necessity for these variations only became apparent after the Tempo contract was signed and were necessary to address defects in the works performed by Buildark. Summer Breeze has paid Tempo for these variations.[20] I accept that the claim is recoverable on the same basis as the claim in paragraph 43 as being in the nature of damages for Buildark’s breach of the Buildark contract.
[20]Ibid, p 145.
Liquidated damages pursuant to the Buildark contract up to 24 September 2018 – $323,500
This amount is claimed for liquidated damages payable under the Buildark contract by reason of Buildark’s failure to deliver the contract works on time. The date for practical completion of the works provided by clause 35.2 of the Buildark contract is 15 December 2017.[21] Mr Wilson deposes that Buildark had not completed the works on 25 September 2018 when the Buildark contract was terminated. Under clause 35.6 and item 26 of annexure A of the Buildark contract, liquidated damages were payable at a rate of $4,000 per day and are calculated as totalling $896,000. Liquidated damages are not limited by the contract.[22] Summer Breeze reduced this claim by reason of its ability to access two bank guarantees given to it by Buildark under the contract in a total of $572,500, leaving an amount owing for liquidated damages of $323,500.
[21]See also Item 25 of Annexure A to the Buildark contract in Exhibit ‘JW’ to the affidavit of Justin Wilson sworn 2 September 2021, p 80.
[22]Item 27 of Annexure A to the Buildark contract in Exhibit ‘JW’ to the affidavit of Justin Wilson sworn 2 September 2021, p 80.
I accept that this claim is provable in the winding up of Buildark, being ‘a claim sounding only in damages the circumstances giving rise to which occurred before the relevant date’.
Interest and fees paid to National Australia Bank in relation to facilities – $249,256.86
Summer Breeze does not press this claim as it accepts that it is included in its claim for liquidated damages.
Interest and fees paid to National Australia Bank in relation to facilities from 1 November 2018 until 14 January 2019 – $165,505.65
Mr Wilson states that these amounts were incurred by Summer Breeze for loans made by National Australia Bank (‘NAB’) for it to complete construction of the development at Mornington which Buildark was required to build. In its submissions Summer Breeze describes this as a consequential loss claim arising out of the delay in completion of the works contracted to be performed by Buildark. It is not covered by the liquidated damages claim considered in in paragraph 45, which only ran to 24 September 2018 when Summer Breeze terminated the Buildark contract. Mr Wilson states that these amounts are claims for liquidated amounts which would not have been incurred if Buildark had completed its obligations under the Buildark contract. Although the loss was only able to be quantified after the date on which Buildark went into administration (5 October 2018), the breach was complete on 24 September 2018, giving rise to a right of damages as at that date, even if it could only be quantified after that date.
The quantum of the claim is set out in a letter from NAB of 5 February 2019 to Summer Breeze. NAB sets out the bank fees and interest charges which were incurred from 1 November 2018 until 14 January 2019 for two separate accounts. In respect of an account styled ‘Summer Breeze Pty Ltd ATF Summer Breeze Investment Trust Business Markets Loan’, interest and bank fees totalling $163,541.44 were incurred. A second account, also in the name of Summer Breeze, in respect of an overdraft facility, was for interest and fees of $1,964.21. Those amounts total $165,505.65. I accept that the claims for those sums are provable in the winding up of Buildark.
Insurance premium for the Mornington construction site – $40,403
Mr Wilson states that under the Tempo contract, practical completion of the works at the Mornington site was required to be achieved on 31 January 2019. The Notice of Practical Completion in evidence states that practical completion was, however, only achieved on 27 March 2019. A claim is made for $40,403 for insurance premium for the Mornington construction site for the period 14 September 2018 to 31 January 2019 i.e. after the termination of the Buildark contract and during most of the period of the Tempo contract. The cover was taken out with ATC Insurance Solutions Pty Ltd for contract works insurance in respect of the work required to be done by Tempo under the Tempo contract. Mr Wilson exhibits a copy of the invoice for this insurance.[23] The exhibit is a poor copy of the invoice, but on close examination it can be discerned that is for a total amount due of $40,403, made up of premium, emergency fire services levy, stamp duty, insurer administration fee, advisor service fee, administration fee and GST. This insurance would not have been required had Buildark performed its obligations under the Buildark contract. It was payable on 17 September 2018, prior to the relevant date.
[23]Exhibit ‘JW’ to the affidavit of Justin Wilson sworn 2 September 2021, p 131.
The circumstances giving rise to such claim arose before the relevant date. I accept that this claim is provable in the winding up of Buildark as arising by reason of Buildark’s breach of the Buildark contract.
Cost of expert defects report from Curie Constructions – $74,800
Summer Breeze claims an amount of $74,800 exclusive of GST for the cost of obtaining an expert report from Curie Constructions, which is apparently a building consultant. The report was necessary in order to identify the defects to be remedied and the tasks required to complete the works by Tempo under the Tempo contract.[24] The evidence indicates that Curie Constructions charged a total of $82,280, which is inclusive of GST, in three tranches of $27,426.67 each. The claim is the subject of a fee proposal composed by Curie Constructions, which detailed the matters to be the subject of the report.
[24]Ibid pp 132–5.
I consider the claim to be provable in the winding up.
Quantity surveyor assessments – $22,949.63
Mr Wilson exhibits several tax invoices from Berkowitz & Associates, Quantity Surveyors. Mr Wilson deposes that this claim arises as a reasonably incurred expense following on from Buildark’s breach of the Buildark contract. By reference to the narrative in the invoices, the quantity surveyors appeared to be assessing progress claims by Tempo from September 2018 until mid February 2019. The role of Berkowitz and Associates was to monitor Tempo’s completion of the works and the payment of progress claims. I infer that the engagement of the quantity surveyors was necessary and ancillary to supervision of the engagement of Tempo to complete the works and flows from the breach of the Buildark contract.
I will allow such claims.
Finnis architectural work to complete project – $15,095.34
This claim is the subject of several invoices[25] from Finnis Architects, dating from November 2018 until January 2019, that is, after the termination of the Buildark contract and during the works conducted by Tempo. All of the invoices have a notation that they have been paid. I would allow this claim as being an incident of the breach by Buildark of the Buildark contract and the necessity for the architects to be engaged and involved in the supervision of the Tempo contract works.
[25]Exhibit ‘JW’ to the affidavit of Justin Wilson sworn 2 September 2021, 139, 162–5.
Legal fees arising from breach by Buildark of the Buildark contract
There are three claims arising under this head. None of the work of any of the three lawyers engaged is in respect of a litigious proceeding as such. The first is a payment of $3,410 to a barristers’ clerk of Svenson Barristers. This invoice is in respect of fees payable to Mr K Oliver of counsel for professional fees. Svenson Barristers generated an invoice of 20 September 2018.[26] Particulars of Mr Oliver’s work appear in the narrative to his memorandum of fees of 26 September 2018. The work performed took place between 27 August 2018 and 6 September 2018. It is apparently in connection with the period leading up to the termination of the Buildark contract and includes settling a show cause notice.
[26]Ibid, pp 140–1.
In an invoice of 1 October 2018, Noble Lawyers claimed a sum of $2,692.80 for the period 19 September 2018 to 27 September 2018. The narrative in Noble Lawyers’ invoice reveals that work was in connection with the termination of the Buildark contract and the subsequent claim upon insurers.
The third invoice in respect of legal fees is that of Rockman & Rockman who were engaged by Summer Breeze in connection with the Buildark contract termination. I have reviewed the narratives in those accounts and I am satisfied that they relate to the period leading up to the termination of the Buildark contract and the engagement of Tempo in the last months of 2018. They include communications with Mr Oliver of counsel.
I am satisfied that each of these claims are provable in the winding up of Buildark as they are associated with and incidental to Buildark’s breach of contract and were a necessary and reasonable expense incurred by Summer Breeze flowing from the breach and which would not have been incurred but for the breach.
Survey work by Farren Group – $1,650
This claim arises from an invoice[27] from Farren Group to Summer Breeze for surveying services, described as a ‘levels survey’ and title boundary work in respect of the Mornington site. The invoice was generated on 7 December 2018 after the termination of the Buildark contract and during the Tempo contract as part of the works required to complete construction. I am satisfied that the surveying work was required in order to complete the works at the Mornington site after the Buildark contract was terminated and flow from Buildark’s breach. I will admit the claim.
[27]Ibid, p 166.
BCE Design Pty Ltd, engineering inspection – $2,640
This claim arises from an invoice[28] from BCE Design Pty Ltd dated 27 November 2018, that is during the period of the works being performed by Tempo. Much of the invoice relates to what is described as ‘an existing condition report’ with an amount included for a site inspection. I infer that these works involved an assessment of what works were required to complete works which were originally contracted to be performed by Buildark but were not. I would allow the claim.
[28]Ibid, p 168.
Olsson Fire & Risk Consulting Engineers – $3,080
This claim arises from an invoice[29] from Olsson Fire & Risk Consulting Engineers dated 28 November 2018. The narrative to the invoice notes that it is in respect of ‘End of Project Inspection Certificate’ and is noted as being paid on 19 December 2018. The invoice notes that it is in respect of professional services rendered from 5 November 2018 to 28 November 2018. The works involved certifying that the site was compliant with fire regulations. The invoice was directed to Finnis Architects but I accept that it was ultimately a liability met by Summer Breeze and contracted by its agent, Finnis Architects.
[29]Ibid, p 169.
Costs pursuant to orders of Riordan J made 1 April 2020 – $174,621.36
As has been mentioned, on 3 April 2020, consent orders were made by Riordan J, which included an order that Buildark pay Summer Breeze’s costs of the proceeding.
Mr Rockman has exhibited a bill of costs in respect of Riordan J’s order, which has been prepared in accordance with the Supreme Court scale of costs by Mullen Costs Lawyers. The sum of $174,621.36 is comprised of solicitor’s costs of $98,932.77 and disbursements of $75,688.59. The bill has not been taxed by the Costs Court.
Mr Wilson deposes that Summer Breeze has paid all the costs incurred by it in the proceeding, including counsel’s fees. Certain items, numbered 935–956 in the bill of costs, are not pressed, reducing the amount claimed for solicitor’s charges from $98,932.77 to $94,467.32.
In Summer Breeze’s submissions in support of this application, it is contended that the costs are admissible to proof even if they were not taxed prior to liquidation. Reference was made by senior counsel for Summer Breeze, Mr Evans, to a passage in the decision of the High Court in Foots v Southern Cross Mine Management Ltd (‘Foots’) in support of that proposition.[30] In Foots, a company sued its former chief executive. Judgment was given against the defendant and he was ordered to pay damages. Shortly after the orders were made, the defendant became bankrupt on his own petition.
[30](2007) 234 CLR 52, 73 [57] (Gleeson CJ, Gummow, Hayne and Crennan JJ).
Several months later the defendant was ordered to pay the costs of the proceeding on an indemnity basis. The defendant contended that the costs order was a debt provable in his bankruptcy and the company had not been entitled to seek the costs order because leave had not been obtained under s 58(3)(b) of the Bankruptcy Act, which provides that it is not competent for a creditor to commence any legal proceeding in respect of a provable debt or to take any fresh step in such a proceeding without the leave of a court having jurisdiction in bankruptcy.
In Foots, the High Court was required to consider the question whether the costs order was a provable debt within the meaning of s 82 of the Bankruptcy Act, which involved resolution of the question as to whether the costs order was a debt or liability arising from an obligation incurred before the date of bankruptcy i.e. the date that the defendant presented his petition. The ‘date of bankruptcy’ is akin to the ‘Relevant Date’ mentioned in s 553 in the corporations law context.
The High Court held that the costs order was not a liability that arose in respect of an obligation incurred before the bankruptcy and that the obligation had not arisen until the costs order was made. Section 82 did not operate to render the costs order provable in the bankruptcy and the company had not been prohibited by s 58(3) from seeking the costs order. The High Court stated:
In the decision of the Queensland Court of Appeal in Sommerfeld it is said, with respect rightly, and by reference to British Gold Fields that ‘[a] potential or contingent liability for costs is not a provable debt unless an order for payment of those costs has been made before bankruptcy intervenes’. It is then observed in the same paragraph that ‘[t]he case is not one in which it can be said that there is a provable debt to which an order for costs is or would be incidental in the sense laid down in [British Gold Fields]’. The latter comment was made in passing, but what justification was there for assuming the result would differ if the litigation concerned a provable debt?[31]
[31]Ibid (citations omitted).
In Foots, the High Court concluded that:
several difficulties lie in the path of the admission to proof of the costs order made against Mr Foots. First, the order made falls outside of s 82(1) because it was made after the bankruptcy, and was thus not a liability ‘to which the bankrupt was subject at the date of the bankruptcy , or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of bankruptcy’ (emphasis added). Secondly, as explained earlier in these reasons, Mr Foots was under no antecedent obligation to pay costs until the order was made against him. Thirdly, there is no scope in the text or structure of the Bankruptcy Act for the notion of an obligation or liability ‘incidental’ to a provable debt. The necessary corollary of the appellant’s argument is the admission that such an obligation is not itself a provable debt, but is only ‘incidental’ to one. If such an obligation is not a provable debt, when then should it be admitted to proof? Dressing the notion in the language of ‘incidence’ does not alter matters: rather, it is apt to disguise the text of the Bankruptcy Act.
Here, the liability for the order for costs came into existence on the occasion that the winding up order was made on 3 April 2020 and while they were in respect of Summer Breeze’s costs for bringing about the liquidation, they are not expressed to be Summer Breeze’s costs as applicant in the winding up so as to afford those costs priority under s 556(1)(b).
My attention was also drawn to the decision of Conway v Insolvency & Trustee Service Australia.[32] It was said that there appears to be uncertainty as to whether costs are admissible to proof before taxation by the Court. Summer Breeze submitted that a liquidator has the power to estimate and admit to proof the amount of the cost which would be assessed as payable on a taxation of a bill of costs and that even if this proposition is incorrect in the particular circumstances of this case, where the Court is in fact undertaking the assessment, it has the power to tax the costs as an ancillary power to the determination of the admissibility of the proof of debt.
[32][2003] FCA 321.
If Summer Breeze’s proof in respect of the legal costs following on from the judgment of Riordan J were to be determined by an application of the High Court’s reasoning in Foots, noting that that decision concerned the operation of Bankruptcy Act and not the Act, my view would be that such costs are not admissible to proof.
However, by operation of s 553(1A)(a) of the Act, which is within Division 6—Proof and Ranking of Claims, the position in that regard is modified to adapt for the situation where a company has been subject to a deed of company arrangement prior to going into liquidation. For convenience, I set out again the relevant provisions of s 553(1A) which provide:
(1A)Even though the circumstances giving rise to a debt payable by the company, or a claim against the company, occur on or after the relevant date, the debt or claim is admissible to proof against the company in the winding up if:
(a)both of the following are satisfied:
(i)the circumstances occur at a time when the company is under a deed of company arrangement;
(ii)the company is under the deed immediately before the resolution or court order that the company be wound up; or
...
This subsection has effect subject to the other sections in this Division.
The notes to the sub-section state relevantly:
Note 1: See Division 10 of Part 5.3A for provisions dealing with deeds of company arrangement and regulations made under Division 3 of Part 5.3B for provisions dealing with restructuring plans.
Note 2: See paragraph 513A(d) for deeds that are followed immediately by court ordered winding up ...
Note 3: A debt or claim admissible to proof under paragraph (1A)(a) will only be covered by paragraph 556(1)(a) if the administrator of the deed is personally liable for the debt or claim (see subsection 556(1AA)).
...
In effect, s 553(1A) operates as a form of saving provision, to broaden the ambit of debts and claims against a company that are captured and provable in a winding up. Relevantly, the wording of s 553(1A) allows a debt, such as legal costs, to be provable even if the ‘circumstances giving rise’ to the debt ‘occur[ed] on or after the relevant date’, provided the two conditions in s 553(1A)(a)(i) and (ii) are met. The policy underlying the provision would seem to be to capture and render provable debts that arise within the time line of a protracted administration of a company under a deed of company arrangement. In such a scenario, exemplified by the present one under consideration, circumstances giving rise to a debt or claim can conceivably occur well after the relevant date, i.e. the date that the company went into administration. Whenever a deed of company arrangement is terminated and an order for costs is made in the applicant’s favour, the debt or claim for costs will necessarily arise after the relevant date. If there was no provision in the form of s 553(1A)(a), a creditor with such a debt or claim could not prove in the liquidation and the liquidation would be concluded without the creditor’s interest being entitled to participate in a distribution of a dividend in the winding up.
Here, the relevant date for the purpose of s 553(1A) in the insolvency administration of Buildark is, by the operation of ss 513A(d) and 513C(b) of the Act, 5 October 2018. The circumstances giving rise to the debt for legal costs occurred when Riordan J made the orders on 3 April 2020, after the ‘relevant date’, and, on an application of Foots, this debt would not be provable. However, s 553(1A) nevertheless captures this debt, rendering it provable because the circumstances giving rise to the debt (the order by Riordan J) occurred at a time when Buildark was under a DOCA. The DOCA was on foot until Riordan J made orders terminating it on 3 April 2020. In addition, immediately prior to Riordan J’s order to wind up Buildark, the company was under the DOCA. Consequently, the two pre-conditions prescribed by s 553(1A)(a)(i) and (ii) are satisfied and s 533(1A) is enlivened, with the effect that the legal costs are provable in the winding up. The principle in Foots therefore has no operation in this context.
I have reviewed the bill of costs prepared by the costs lawyers, which is exhibited to Mr Rockman’s affidavit.[33] As has been mentioned, Summer Breeze have paid this bill, including that claimed in respect of disbursements. Mr Rohrt does not oppose Summer Breeze’s claims to be admitted to proof, including the claim for costs. I will admit the claim for costs despite it not having been taxed. In this regard, I agree with Mr Evans’ submission that had Mr Rohrt adjudicated on this claim, he would have been entitled to admit it to proof without the bill being required to be taxed. As has been mentioned, certain items are not pressed by Summer Breeze, reducing the claim for solicitors charges to $94,467.32 and together with disbursements of $75,688.59, this claim totals $170,155.91.
[33]Exhibit ‘RR’ to the affidavit of Raymond Rockman sworn 21 April 2021, pp 18–83.
My preliminary view is that there should not be an order for costs of this application against Mr Rohrt personally as Summer Breeze proposes in its originating process. In the circumstances of there being no funds available for distribution to creditors, I regard it as reasonable for him not to have incurred the expense associated with adjudication of Summer Breeze’s proof, particularly when Summer Breeze has expressed no rationale for the necessity for such adjudication. I do, however, consider that Summer Breeze should have its costs of this application as costs in the winding up. If the parties wish to take issue with this they should file a short submission in that regard when they have had the opportunity of considering these reasons.
SCHEDULE OF PARTIES
| S ECI 2021 01218 | |
| BETWEEN: | |
| SUMMER BREEZE PTY LTD (ACN 165 267 541) | Plaintiff |
| - v - | |
| RICHARD TRYGVE ROHRT in his capacity as liquidator of BUILDARK CONSTRUCTIONS PTY LTD (IN LIQUIDATION) (ACN 166 977 902) | First Defendant |
| BUILDARK CONSTRUCTIONS PTY LTD (IN LIQUIDATION) (ACN 166 977 902) | Second Defendant |
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